Discount stock brokers are dime a dozen. So many have cropped up over the past few years, picking a true low cost broker can be a daunting task. I’ve compared a number of low cost brokers and I noticed one hidden fee that most brokers are not up front about.
Say you wanted to try out this new broker that offers really low trading fees, no annual fee or inactivity fee and no account minimum to get started – what could you possibly lose to just give this discount broker a try! I mean if you don’t like it, you can always close the account and transfer to a new broker, right? Ah! That’s where they get you!
It’s called the ACAT fee. What is ACAT? Let me give you an example instead of just giving the expansion of ACAT. Say you bought 100 shares of your favorite company Apple on July 11 2003 at $10 each for a total of $1000. Today it is worth (gasp!) $22400! And say you wanted to move to a different broker. What about your 100 shares of AAPL? You have the following 2 choices regarding your shares:
- Move your shares to the new broker
- Sell your shares, wire the money to your new broker, buy the same shares again
If you picked 1, you picked the correct one. You should do a ‘in-kind’ transfer of your assets to your new broker. This is called an ACAT, Automated Customer Account Transfer. This is where your slimy broker will hit you with a ACAT fee which can range from $50 to $75. You can do a full or a partial transfer. Both might incur fees.
To avoid this fee, you decide to go with option 2. Simply sell your assets, wire the money to your new broker and buy 100 shares of AAPL again! Don’t! When you sell your shares, you have to pay taxes on it. In this case, long term capital tax of upto 15% depending upon your tax bracket. That’s $3450 if we take our example! And while this transfer takes place, which could be upto a week, if the price of AAPL raises to another $5, that’s another $500 lost!
List of brokers and their ACAT fee:
Bank of America: $75
TD Ameritrade: $75
Charles Schwab: $50
Also watch out for Account Closing fee some brokerages charge. For example, Fidelity as far as I can tell, does not have an ACAT fee, but they’ll charge you with account closing fee of $50 for IRA accounts. There are some brokers who will reimburse ACAT fees when you join them. Best to ask.
Remember, you should put as much effort to keeping your expenses low as you put to making some money!